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Short Sales and Realtor Responsibilities to Sellers
This post is a quick overview of what a seller should expect from their Realtor when listing their home as a potential short sale.
There is a lot of confusion and misinformation in the real estate community and among home owners and buyers about what is involved in a ‘short’ sale. A Short Sale is a situation where the seller’s lender agrees to accept less than what they are owed when a property is sold. This can be a benefit to a home owner potentially facing foreclosure. Short sales can be very frustrating for all concerned, but as time passes, some semblance of order is slowly making its way into the process.
First of all, real estate agents and brokers are NOT attorneys, accountants, or tax experts. We are licensed to perform a very limited set of services. These include understanding the details of the local market, making sense of historical sales and future trends, making informed pricing suggestions to clients, negotiating price and terms, and ensuring a transaction makes it to the closing table.
Any seller contemplating a short sale should indeed enlist the services of a Realtor®, but they should also discuss their personal situation with their attorney and tax advisor.
A common misconception about the process is that the bank is in charge. The bank is the final arbiter of the outcome as a short sale only makes sense if the bank would lose more money foreclosing on the property, or accepting a deed in lieu of foreclosure from the seller – but the bank is not in charge of the short sale process. Up until such time as the deed transfers from the existing home owner / seller to a new owner, the seller owns the house and controls the process.
What does this mean? It means that Realtors® need to approach a potential short sale listing as they would any other and that means starting with a complete and thorough comparative market analysis. My rule of thumb is ‘What is the most amount of money I can get this home under contract for in the next 90 days?”
That means, just as an appraiser would, I go back and look at comparable sales in the neighborhood for the last six months. If as is often the case these days I cannot find enough history, I will go back a year or more if I have to. Then, I look at what else is on the market and try to establish the current trend. Is the market falling, or stabilizing? Either way, my job is to figure out what the house is worth, or what it will appraise for today. I need to have enough data to defend my price recommendation to the homeowner, and at some point in the process, to the lender.
So what happens next? Without fail a well priced home is going to generate offers. A popular misconception in the real estate community is that any offer, no matter how low, has to be presented to the lender. This could not be further from the truth. Based on our experience and contact with several lenders, a lender is only going to consider an offer between 90 and 95% of the list price. If the home is priced right to begin with, it is entirely reasonable to expect a full price offer and potentially multiple offers.
The primary reason it takes so long to get a response back from a short sale request is that the system is clogged with ‘low ball’ offers that the bank is never going to accept.
Regardless of the number of offers received, it is up to the seller to select the best offer in terms of price, terms, and the ability of the buyer to close. This is no different than if the transaction were not a potential short sale. The sellers look to their Realtor for advice and counsel during this process, and again, this is what we are licensed to do.
The seller owns the house, it is the seller that accepts the best offer received, and it is the seller that requests their lender to accept a short sale based on this offer.
To review, the short sale process is a time consuming, and most times a frustrating process as well. However, keeping in mind the following key points will expedite the process:
• The seller owns the home and makes the decisions.
• The Realtor is there to help the homeowner get the best possible price for the property.
• The market analysis must be defensible by the Realtor to the lender.
• No offer should be submitted to the bank that is less than 90% to 95% of the list price.
• Only one offer should be accepted and that is the offer that goes to the lender.
• Most importantly, your Realtor is NOT an attorney or tax advisor – get expert help.
Best of luck!
